Condotels · 4 min read
Condotel Due Diligence: HOA, Rental Pool and Legal Traps
A condotel is two deals in one: a piece of real estate and a share of a hotel business you don't control. After decades around these structures, here's what I check first.
Published
Two deals in one
When you buy a condotel unit, you own the real estate, but your income depends on a hotel operation run by someone else. The brochure sells the first deal. Your returns live in the second. I've watched owners learn this the hard way in resort markets across three continents.
That's why condotel due diligence has to cover three documents most buyers skim: the condominium declaration and HOA budget, the rental pool or rental management agreement, and the operator's track record at this specific property.
“When you buy a condotel unit, you're buying the rental pool agreement as much as the unit.”
The HOA budget
HOA dues in a condotel often fund far more than a normal condominium: lobby, pool, front desk areas, elevators, and sometimes shared hotel systems. I ask for at least three years of actual HOA budgets, not just the current one, and compare dues growth against rental income growth.
Then check the reserve study. An underfunded reserve means future special assessments, and in a building that runs as a hotel, a deferred renovation can come due all at once. Ask directly: what assessments have been levied in the last five years, and what is planned?
The rental pool agreement
This is where most of the economics sit, and it's the document I spend the most time on. Read how revenue is split between owners and the operator, which costs come off the top before the split, and whether those costs are capped. A generous-looking split can shrink quickly once reservation fees, marketing charges, housekeeping, and FF&E reserves are deducted first.
Also check how revenue is allocated across units. Some pools share income across all participating units; others pay per unit actually rented. Each model shifts risk differently, and neither is better by default — it depends on your unit's view, size and floor.
Finally, read the exit terms. How long is the agreement? Can you leave the pool, and at what cost? Are personal-use nights limited or blacked out in peak season? Can the operator require you to renovate your unit to a brand standard at your own expense?
The legal traps
Condotels can raise securities questions when units are marketed mainly on rental returns, so how the offering is structured and sold matters. Rules also differ by country, state and municipality: zoning may restrict owner occupancy, short-term rental rules may change, and lenders often treat condotels differently from regular condos, which can limit financing and resale buyers.
None of this means a condotel is a bad investment. It means the questions are different, and an attorney familiar with condotel structures in that jurisdiction should review the documents before you sign.
Check the numbers behind the projections
Sales projections usually show a hotel's best case. Ask for the actual owner statements for comparable units over several years, and the property's P&L and STR performance against its competitive set. If the projected occupancy and ADR are well above what the property has actually achieved, the projection isn't a forecast — it's a pitch. I've seen too many buyers pay for the pitch.